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Industry predicts foreclosures without aid

Sat., Dec. 27, 2008

Commercial real estate asking for help with loans

WASHINGTON – Some of the country’s biggest commercial real estate players are asking the government for help, as their $6 trillion industry of hotels, office buildings and shopping malls faces a record amount of debt coming due in the next few years.

Trade association executives said that in the last few weeks they have met with members of President-elect Barack Obama’s transition team, congressional leaders and officials at the Treasury Department and Federal Reserve to make their case for assistance.

In the next three years, they pointed out, an estimated $530 billion of commercial mortgages will come due for refinancing – with about $160 billion due next year, according to Foresight Analytics, based in Oakland, Calif. But with the credit markets virtually collapsed, thousands of those properties could go into foreclosure or bankruptcy if owners are unable to get new loans.

“If you can’t get a loan and you owe the bank the money, you have to find the cash to pay the loan back or you default on the property,” said Steven A. Wechsler, who has been lobbying as president and chief executive of the National Association of Real Estate Investment Trusts, a District of Columbia association with 3,000 members. “Banks’ jobs are to make loans, not own real estate. That’s something we’d like to avoid. It could be a downward spiral that’s driven by a compromised system of credit delivery. Some constructive step by federal policymakers would be wise and appropriate to be able to free up the market.”

The real estate industry is going to the government for help because “they can,” said Jim Sullivan, a managing director at Green Street, a real estate research firm in Newport Beach, Calif.

“They see what everybody else has gotten,” he said. “Real estate is a capital-intensive business and there is no capital. They’ll take cheap money from whoever is giving it out and now there’s only one source – the government.”

The trade associations are asking that their members be included in a $200 billion lending facility that was created by the government to support the market for consumer debt such as car loans, student loans and credit cards. In a recent letter to Treasury Secretary Henry Paulson, industry leaders from a dozen groups described the troubled situation. “The paralysis of credit, which began in the short-term market, has coursed through the system and it now severely affects longer-term credit, especially secured and unsecured commercial real estate loans,” they wrote.

When Paulson announced the $200 billion initiative, he noted that it could possibly be expanded to aid the commercial real estate market.


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